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Judge Rules in Favor of State College Property Management Company in Lawsuit Brought by Pa. Attorney General’s Office

A State College property management company’s practices for retaining security deposit funds and other lease provisions were not unfair or deceptive, a Centre County judge ruled this week in a lawsuit brought by the Pennsylvania Office of the Attorney General.

Judge Katherine Oliver’s 24-page verdict filed on Monday comes more than three years after the OAG filed the lawsuit against Associated Realty Property Management, claiming that the company violated the Pennsylvania Consumer Protection Law. A non-jury trial was held in March, and both parties subsequently filed post-trial submissions.

Oliver ruled in favor of ARPM on three counts and part of a fourth. A partial verdict in favor of the Attorney General’s Office on one count found the company, which rents upwards of 1,500 units annually primarily to Penn State students, improperly required tenants to use approved carpet cleaning services upon move out. Oliver wrote that while “misguided,” the requirement intended to protect tenants from incurring further charges and she imposed no civil penalties.

The litigation against ARPM was one of at least five similar actions brought against State College area landlords during now Governor-elect Josh Shapiro’s tenure as attorney general. Two other cases are pending in the Centre County Court of Common Pleas and two companies settled out of court with assurances of voluntary compliance and restitution of $25,000 and $30,000.

ARPM vowed to fight the lawsuit from the outset and was successful, paying only $541.75 toward the cost of litigation for the partial verdict against the company. In its preliminary objections filed in 2019, ARPM argued that the attorney general had a “convoluted” interpretation of the Consumer Protection Law, that the lawsuit and others like it amounted to a “shakedown” of private businesses and that Shapiro “maliciously wielded his influence… and generally wasted public resources” in an attempt to force a settlement.

The OAG claimed that ARPM unlawfully retained security deposit money for administrative fees and normal wear and tear. ARPM charged administrative fees of 10% and later 15% to offset overhead costs for move-out repairs and cleaning until 2015, when the company learned the OAG considered such separate fees to be illegal.

Oliver agreed that the fees were used to offset actual costs associated with the work, not as an arbitrary surcharge, and that there was no evidence ARPM misrepresented how security deposit money would be used. OAG also provided no evidence that tenants were charged for cleaning when they had fully complied with the lease obligations, Oliver wrote. She rejected the argument that ARPM needing to clean a unit when tenants moved out was merely remedying normal wear and tear, since the company had a reasonable expectation that the residence would be surrendered in the same condition it was provided.

“The Court finds no merit in the suggestion that ARPM charged tenants for cleaning services that were the landlord’s responsibility or that were otherwise not lawful or appropriate under the lease,” Oliver wrote

The OAG also contended ARPM failed to sufficiently describe actual damages for which security deposit funds were retained, making it difficult for tenants to challenge charges. Oliver ruled that while ARPM did not provide detailed itemization of move-out repairs, the ledger of charges it did provide did not constitute a deceptive practice.

“The move out repairs are identified as such on the tenant ledger and are listed separately from other items, such as cleaning and carpet-cleaning fees,” Oliver wrote. “Furthermore, there was no evidence that ARPM charged for repairs that were unnecessary or not the responsibility of the tenant, and the evidence demonstrated that additional detail would be provided if requested by the departing tenant.”

The OAG further claimed ARPM’s leases included misleading or confusing language, particularly with respect to “fines” for violating rules and regulations related to local laws and ordinances. A tenant could be misled to think it was a fine being levied directly by a government authority, the OAG contended.

ARPM, which no longer uses the term “fines” in its leases, countered that they were clearly explained in the lease and levied for safety reasons, such as for tampering with a smoke detector. They also were meant to deter behavior that would accumulate points under State College’s nuisance property system and which, if left unchecked, could result in “extraordinary and almost incalculable damage” to the company were it to lose a rental permit.

Oliver agreed that there was no basis for the argument that the word “fines” would confuse the tenant to believe they were being assessed by a public agency.

“OAG did not present evidence that any tenant had labored under such confusion or misunderstanding over all the lease years under review…,” she wrote.

A fourth count addressed claims of what the OAG called other prohibited lease provisions. They included statements, which are no longer used in leases, that the company could unilaterally alter rules and regulations, and thus leases, at any time; a right of entry provision allowing staff to enter leased premises at reasonable times for inspections and repairs; and the requirement to use an ARPM-approved carpet cleaning service on move-out.

Oliver wrote that the lease provision reserving the right to make unilateral changes was “unenforceable.” But, she added, there was no evidence that ARPM ever attempted to implement the provision or represented that it was enforceable in all circumstances, and the presence of the provision in the lease alone was not enough to support the claim.

For the right of entry provision, testimony established that tenants are typically notified in advance and given a timeframe, and that employees knock and announce themselves on arrival, Oliver wrote, again concluding the provision was not enough to support the claim. ARPM argued that it was a standard and necessary policy for landlords to be able to address repairs and emergency maintenance.

Oliver did find that lease requirements for an approved carpet cleaning service did restrict tenants’ rights and violated the Consumer Protection Law, but that the violation was not “willful.”

“Although misguided, ARPM’s intent was to protect the consumer by requiring vendors who guaranteed their result,” Oliver wrote. “The Court finds no evidence that ARPM willfully employed a practice declared unlawful by the [Consumer Protection Law]. Consequently, OAG’s request for the imposition of civil penalties will be denied.”

The OAG had been seeking full restitution to tenants, civil penalties of $1,000 each for every violation of the Consumer Protection Law and the costs of investigation and prosecution.